The difference between poverty and destitution

Dan Mitchell comments and expands on Thomas Sowell’s latest column. Both are well worth reading.

I just had to include this passage from Sowell:

“Poverty” once had some concrete meaning — not enough food to eat or not enough clothing or shelter to protect you from the elements, for example. Today it means whatever the government bureaucrats, who set up the statistical criteria, choose to make it mean. And they have every incentive to define poverty in a way that includes enough people to justify welfare state spending. Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight. But an arbitrary definition of words and numbers gives them access to the taxpayers’ money.

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Bureaucratism

On Facebook, a friend says he’s tired of hearing conservatives claim the country is heading toward socialism and will ask the next person who makes the claim to support it with a dissertation.

This chart shows government spending as a percent of the economy has long been trending up to less than 10% in the early 1900’s to between 35% and 40% now.

But, even with the growing percent of the economy in the government sector, I may still not call that necessarily ‘moving toward socialism.’ I think a more appropriate term is bureaucratism.

Some things air traffic controller related

As Thomas Sowell said about the spending elected officials might choose to cut when forced to (even though they themselves were the ones that forced it as a result of an earlier political ploy that backfired):

Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do? The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place.

 

Today, The Wall Street Journal Opinion comments on the Administration’s all to transparent and silly usage of the tactic Sowell described (emphasis mine):

Remember when the sequester’s spending cuts were going to incite mass uprisings for higher taxes? Instead, Senate Democrats and the White House blinked, not least because the FAA’s transparent political strategy was to use incompetent government as a bludgeon on behalf of bigger government. The American public waiting in departure lounges figured this out, which is presumably why the political capitulation is so total.

They also agree that we should get government out of air traffic controlling and point to several other countries that have already taken the grubby politician’s fingers off these pawns:

To wit, Congress ought to abolish the FAA and privatize the air navigation system the way that Canada and other developed countries have. A nonprofit corporation funded by user fees would make better cost-benefit decisions, tap capital markets, replace old-fashioned technology in a timely way and discipline high labor costs.

In addition to NavCanada, Germany, France, Australia and more than 50 others have made the transition to commercial airspaces. No less than Al Gore tried do this when he was Vice President, only to be routed by the unions. Republicans should try again as a plank of a platform to reform and modernize a government that serves itself before it serves America.

Finally, let’s play the ‘imagine if it were a Republican administration’ game. How do you think the media would have covered the air traffic controller furloughs if it were Republicans deciding to delay flights as a political ploy? It’d probably look a lot like this (thanks to Reason Magazine for the pointer):

 

The Hayek and Polyanyi lesson

I learned from this Marginal Revolution post (and its comments) what to call the idea that many successful companies that have emerged in the free market because customers value what they provide would not exist if they had to rely on bureaucrats to approve them.

It’s called the Hayek and Polanyi lesson. Though, this Polanyi is interesting, too.

Competition in education

Here’s a great article about emerging acceptance and experimentation with charter schools, in the Wall Street Journal (found by way of Instapundit). Check out this paragraph from the article:

Mr. Finegold, the bill’s sponsor and the son of public-school teachers, said his motivation sprung from conversations with parents in Lawrence, part of his district northwest of Boston, where the struggling school district was taken over by the state in 2011. The state has since brought in charter operators to run two low-performing schools, and parents told him, “we’d be out of here” had that not happened, Mr. Finegold said. “One thing I don’t think people realize—charter schools are keeping a lot of the middle class in cities,” he said.

Someone finally responded to the exit feedback response.

While I’m sure this thought isn’t original to me, it occurred to me while reading the article how odd it is that strong supporters of the government education monopoly are often also critics of business monopolies.

I suppose they believe that more evil things may happen under a for-profit monopoly, like rising prices, corruption and fat cats getting richer.

Apparently, they haven’t kept up with how the price to educate a child in public schools has grown faster than inflation for decades, or how much money superintendents make and what type of corruption persists at failing school districts that keep getting their funding.

I’m guessing that’s exactly the behavior they would expect from business monopolies. To fix this in business, they want competition. To fix it in education, they usually want to keep out competition and just bring in a different fat cat.

Interesting Reading Trifecta

Every now and again, I hit upon related topics in more than one reading in one day.

1. kludge…what?  Not sure I like the name, but I like the thought (via Marginal Revolution). Steve Teles writes about a real problem:

The fact that so much of our welfare state is jointly administered — either inter-governmentally or through contracting with private agents — makes it hard for Americans to attribute responsibility when things go wrong, thus leading blame to be spread over government in general, rather than affixed precisely, where such blame could do some good. The consequence of complexity, then, is diffuse cynicism, which is the opposite of the habit needed for good democratic citizenship.

Though, I’d say the government rarely gets the blame. Rather the blame is placed on the free market. When a heavily regulated and government subsidized health care market doesn’t seem optimal, I think there’s a tendency to overlook the government’s cause in the matter and blame the problems on the free market, simply because there exists some for-profit companies in that public-private morass. Same goes for housing and banking.

2. Don Boudreaux of Cafe Hayek quotes from Sandy Ikeda’s The Virtue of Market Inefficiencies:

…government policies that undermine the…reliability of money prices also make the discovery of inefficiencies profoundly problematic.

Using the rules of arithmetic, for example, it’s easy to see that the statement 1 + 2 = 4 is wrong, but what about  _ + _ = _ ?  What’s the solution to this “problem”?  Is there even a problem here?  Money prices fill in the blanks; they “create errors”—i.e., reveal mistakes that no one could see without them—that alert entrepreneurs might then perceive and correct. If mistakes and inefficiencies remain invisible, the search for better ways of doing things could never get off the ground.

3. But somebody had these guys beat by a couple hundred years as I coincidentally discovered on a plane this evening, I happened to start reading Thomas Paine’s Common Sense on my Kindle app and found this passage as he was building his case against the English Constitution:

I draw my idea of the form of government from a principle in nature…that the more simple any thing is, the less liable it is to be disordered, and the easier repaired when disordered.

Absolute governments (tho’ the disgrace of human nature) have this advantage with them, that they are simple; if the people suffer, they know the head from which their suffering springs, know likewise the remedy, and are not bewildered by a variety of causes and cures. But the constitution of England is so exceedingly complex, that the nation may suffer for years together without being able to discover in which part the fault lies, some will say in one and some in another, and every political physician will advise a different medicine.

Holy Schnikes, T. Paine!

JALJA

Seth Godin on fire drills:

An organization that’s run on emergencies and reaction to incoming doesn’t know what to do when there are no problems.

Instead of seeking out new ways to delight, they run around looking for new emergencies, and if they look hard enough, of course they’ll find them.

(Two reasons for this: emergencies concentrate the mind and allow things to get done, and history).

I’ve worked in my share of fire drill factories, which is why I like Seth G.’s thoughts here.

I once coined a code word for fire drills: JALJA. It stands for Jumping Around Like Jack-Asses, which is what a lot of folks do when fire drills come along.

It’s pronounced J-owl-j-uh.

It was a part the lexicon at work for awhile. Even my bosses would use it. They’d call me into their office and say:

Seth (me, not Seth G), looks like we have another JALJA coming our way. Do you have plans tonight?

That’s not ‘top-down’

I saw a Barack Obama campaign ad while watching the Olympics the other night.

He said we have a choice to make in a few months. It was something like a choice between cutting taxes for the wealthy and hoping that works its way down to the rest of us, which is more top-down. We tried that. It didn’t work. Or we can invest in education, research, etc.

I thought this was funny for two reasons.

First, spending ourselves silly hasn’t worked either.

Second, letting folks keep what they earned isn’t top-down. In fact, it’s the opposite. That’s bottoms-up. What he says he wants to do in the commercial — tax and spend and direct money into the things he sees fit like education and research — is ‘top-down’.

Politicians love to redefine words. They redefined “reduced rate of growth” as a “spending cut” long ago. If your raise wasn’t as much as last year, do you ask your boss why your salary was cut? Probably not. You would look stupid.

‘Top-down’ refers to a system that is micromanaged by the folks in charge. ‘Bottoms-up’ is the opposite.

Washington DC taxing away more of your earnings so bureaucrats can decide how to spend it (e.g. grant to crazy in CO) is top-down. Letting us keep more of our earnings so we can decide how to use it is bottoms-up.

So, not only did Obama get the definition of top-down wrong, but he immediately said he wants to do more of the very thing that he said we should stop doing. Hmmm.

Speaking of crazy in CO, I’ve heard the fact that he was receiving taxpayer dollars mentioned on the news. I haven’t yet seen any aspiring investigative journalists go after the folks who dispense those dollars to hold them accountable.

What if it turned out that the Koch Bros. were funding crazy’s research and education? A 24/7 encampment of reporters would camp at their doorstep asking how they could be so irresponsible and where’s their accountability and what they owe to make amends?

Why hasn’t anyone followed that same trail through the government? Who approved the subsidy? How often is it reviewed? Why didn’t he stop receiving it as soon as he notified the school that he dropped out?

Which makes a key point about Obama’s desired (but lets not call it) top-down management — it doesn’t work because there is no accountability.

The Business Cycle

Stage 1: Entrepreneurs experiment and take risks to make things to satisfy customers.

Stage 2: When they discover something the consumer values — aka value proposition– the experiment turns into a going-concern, or a business, and the business becomes self-funding.

Stage 3: If that value proposition is strong enough, the going-concern grows and comes to generate a safe and steady income stream.

Stage 4: Eventually, the safe and steady income stream attracts bureaucrats who use it to satisfy their own desires to boss people around and self-importance.

The focus of the going concern shifts from satisfying consumers to satisfying bureaucrats.

Stage 5: And not just the bureaucrats that take residence in the corporate offices. Outside bureaucrats will come seeking to hook up their bureaucratic organizations to the safe and steady business streams generated by those successful customer value propositions.  These bureaucrats will come from government at all levels, non-profits, foundations, consulting groups, lobbying groups, industry associations, employer organizations, unions, education, self-governing bodies, franchise owners and regulatory agencies.

Stage 6: Fortunately, competition is there to continue to find ways to satisfy customers. And when they do so, they have an advantage to the organizations that are satisfying bureaucracies. Remember, a start-up need only satisfy customers. Big, successful businesses must satisfy its bureaucracies, often which is a higher priority to satisfying the customer, no matter what the bureaucrats in-charge pay lip service to the customer.

Stage 4: But, if competition is successful, it too will attract bureaucrats.

A company that has suffered deterioration in its attention to value proposition, sometimes is able to attract turnaround entrepreneurs and refocus on the customer. However, many of the outside bureaucracies will stay interested and impede progress as long as the business has the resources to help them, which usually causes further deterioration and continues to give advantage to start-ups.

Related articles

• Following the value proposition to entrepreneurial success (csmonitor.com)
• Good thoughts on business strategy (ourdinnertable.wordpress.com)
• The Right Value Proposition is Heart of Entrepreneurial Success (drjeffcornwall.com)

Government by Fallacy

Columnist E.J. Dionne in the Washington Post:

Yet the drumbeat of propaganda against government has made it impossible for the plain truth about the stimulus to break through. It was thus salutary that Douglas Elmendorf, the widely respected director of the Congressional Budget Office, told a congressional hearing last week that 80 percent of economic experts surveyed by the University of Chicago’s Booth School of Business agreed that the stimulus got the unemployment rate lower at the end of 2010 than it would have been otherwise. Only 4 percent disagreed.

So when conservatives say, as they regularly do, that “government doesn’t create jobs,” the riposte should be quick and emphatic: “Yes it has, and yes, it does!”

The first problem with Dionne’s argument here is that it is what I call an expert fallacy. Just because a majority of a group of experts believe something, it doesn’t make it so. Majorities of experts have been wrong many, many times. I’m more interested in the actual case. Why do some experts believe it and some don’t?

On the Mercatus Center blog at George Mason University, Matt Mitchell posts more problems with Dionne’s argument. Doing his homework on the survey, something Dionne and his editors should have done, Mitchell finds that the survey responses aren’t as clear-cut as Dionne suggests.

On February 15, they [Booth Survey] put two statements to the panel and asked them to respond. The first statement reads:

Because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill.

It is true that, of those surveyed, 51 percent agreed and 29 percent strongly agreed with this statement. Some of the comments from those who agreed with this statement are telling. Anil Kashyap of Chicago for example wrote, “But this is an incredibly low bar.” And Darrell Duffie of Stanford wrote, “Subsidizing employment leads employment to go up, other things equal. Adverse impacts through growth incentives might take time.” These statements (and others) suggest that perhaps the question was overly-narrow.

Thankfully, IGM probed further. They asked the economists to weigh in on a second statement:

Taking into account all of the ARRA’s economic consequences — including the economic costs of raising taxes to pay for the spending, its effects on future spending, and any other likely future effects — the benefits of the stimulus will end up exceeding its costs.

This time, when the economists were asked about the longer-run, total effects of stimulus, they were much more equivocal. Less than half agreed or strongly agreed with the statement, 27 percent were uncertain, and the rest either disagreed or had no opinion. A number of respondents noted the uncertainties involved. Nancy Stokey of Chicago summed it up nicely, writing, “How can anyone imagine this question is answerable, given the current state of economic science?”

Problem 1: The statement that Dionne refers to may have been too narrow. Even some of those who agreed with it may not agree with for the reasons Dionne supposes.

Problem 2: Dionne didn’t mention the results of the second statement of the survey. When asked if the benefits of the stimulus will end up exceeding the costs, less than half agreed. Had Dionne presented the result of this question as well, would it have helped or hurt his point?

We should expect better from folks like Dionne. Not doing your homework and presenting a slanted and narrow view of a survey is lazy, especially for a professional.

I encounter bad form in my part of the political spectrum as well. I’m going to make a point to try to remember to post something about it when I see it.

But, I do have a double standard. I am pickier about the logic of the other side. I have a very good reason to be.

I ask nothing of Dionne, except to use better logic. But that’s only a request. He’s free to ignore it.

Yet, Dionne asks a great deal from us. He wants to force us to approve handing over very large sums of our money to bureaucrats so they can spend it how they see fit, based on his fallacious and narrow argument.

When people want to force me to do something that I don’t believe works, I’d like them to take the time and care and build a sound case.

When someone on my side of the political spectrum uses fallacy, it’s not usually to rationalize handing our freedoms over to bureaucrats.

(H/T to Russ Roberts at Cafe Hayek for the Dionne article and the Matt Mitchell blog post).